Metra officials repeatedly misled the public when they insisted that an unusually large severance package for former CEO Alex Clifford saved taxpayers millions of dollars in potential litigation costs, a bruising report from the Regional Transportation Authority suggests.

The transit agency offered Clifford a $718,000 departure deal in June after he threatened to file a whistle-blower lawsuit alleging political back-scratching and questionable contracts at the nation's second-largest commuter service. Metra attorneys and board members have defended the settlement for weeks, saying the move thwarted a costly legal battle.

A preliminary RTA audit, however, found that Metra has an insurance policy that would have covered litigation costs if Clifford actually had sued, according to documents obtained by the Tribune. The agency's deductible is $150,000 — a fraction of the cost of Clifford's severance package.

The RTA also revised upward the potential value of the severance agreement to $871,000, a significant increase over the $718,000 figure provided by Metra.

"The RTA's audit staff has determined that the Metra board's deliberative process was flawed and their decision to give Mr. Clifford a generous severance package was not financially prudent," RTA Chairman John Gates Jr. said in a statement. "All costs related to the Clifford contract dispute should have been claimed under Metra's existing insurance policy, instead of paid from taxpayer funds."

The rail agency paid $98,000 for the insurance policy earlier this year, and at least one high-ranking board member was aware of its existence, officials said. The policy, which is capped at $10 million, specifically covers whistle-blower and employment-retaliation lawsuits, the audit states.

Shortly after the Tribune posted an online story about the RTA's findings Tuesday afternoon, acting Metra Chairman Jack Partelow said the board plans to fire the outside law firm that handled the settlement negotiations.

Partelow contends that the attorneys advising the Metra board gave it two options: approve the severance package or pay millions in legal fees if Clifford files a lawsuit. In recent appearances before the RTA board and Illinois lawmakers, Metra officials have stated that a whistle-blower claim would have cost the agency $2 million to $3 million.

"Nobody is trying to mislead anybody," Partelow said. "We didn't get (advice on the insurance policy) from the people we paid pretty good money to tell us what to do."

The audit, which will be released Wednesday, offers the most detailed examination of the departure deal to date and will do little to quiet critics who claim that Metra offered Clifford one of the largest severance packages in state history in order to buy his silence.

"RTA's discovery of Metra's insurance policy, which would have covered the costs of litigation and settlement, calls into question the reasons behind Metra's decision to pay Clifford without notifying its insurance carrier," Gates said. "I urge Metra to review its insurance policy, and if it would still be financially prudent, Metra should immediately cancel Clifford's severance agreement."

In addition to casting doubt on Metra's rationale for offering the settlement, the report also chastises the rail agency for failing to document the negotiations.

A mediator helped Metra reach an agreement with Clifford, for example, but there is no paperwork showing his recommendation, according to the audit. The board also hired a former federal prosecutor to investigate Clifford's patronage claims, at a cost of $52,000, but it did not require him to produce a written report on his findings.

"(The) settlement agreement process was inadequate and not sufficiently documented," the briefing document states. "There is a lack of justification for the generous post-employment package."

The total cost of Clifford's settlement could surpass $1 million, as Metra has hired three outside law firms, the mediator and a crisis public relations firm to deal with the controversy in recent months. The RTA audit also raises questions about the consultants hired in the scandal's wake and asks whether the board put the agency's interests first.

"In hiring its own outside attorneys and consultants, the Metra board duplicated efforts that possibly kept Metra staff and its internal legal team in the dark, creating confusion and increasing costs," the briefing document states. "Because those individuals report directly to board members independent of the agency, it's difficult to determine whose interests they were serving."

In hearings before the RTA and the Illinois House Mass Transit Committee, then-Metra Chairman Brad O'Halloran and agency attorneys repeatedly insisted the deal still was cheaper than fighting a whistle-blower lawsuit.

"I'm outraged," state Rep. Jack Franks said Tuesday afternoon. "I specifically asked about insurance in 10 different ways. And they lied each time."

Most of the board members, however, apparently were not told the insurance policy would cover the lion's share of legal fees should Clifford have sued. There's no indication the board discussed the insurance policy in any great detail, according to the audit.

The audit does not suggest Metra should have ended settlement negotiations and taken its chances in court. Rather, it states the board should have been told about the policy's existence before making a decision.

Andrew Greene, an outside attorney who advised the board during the Clifford severance negotiations, declined to comment on the audit or Partelow's remarks. His firm was aware of the insurance policy during the settlement talk, according to the RTA.

Metra board member Jack Schaffer, who cast the sole vote against the severance package, said there was a brief mention early in the negotiations about the insurance policy, but the board was not told about the $150,000 deductible or the $10 million cap. The issue never came up again, he said.

Schaffer said he believes the information was intentionally withheld to secure Clifford's swift ouster.

"Our former chairman had an agenda to get rid of Alex Clifford as quickly and quietly as possible," Schaffer said. "He didn't want to give the board an easy out and let it go to litigation."

Schaffer said some board members feel duped.

"I think several board members would have rethought their position if they knew about the insurance policy," Schaffer said. "If board members feel misled, it's only natural that the public would feel misled too."

O'Halloran, who resigned in July, could not be reached for comment.

Former board member Paul Darley said he did not recall the board being told about the insurance policy and that the information could have influenced his decision.

"To the best of my recollection, this was never presented as an option," Darley said.

Franks, however, insisted the entire Metra board had an obligation to ask if the agency's insurance policies would have covered a lawsuit.

"They're supposed to be more than just rubber stamps," Franks said. "They're supposed to be watchdogs, but they don't do anything."

Most current and former board members could not be reached for comment. The majority have previously defended the settlement as being the most financially sound alternative.

In his resignation letter last month, former board member Mike McCoy of Kane County said his vote to award the settlement was primarily based on the financial analysis.

Metra's troubles started quietly in April when Clifford sent an eight-page memorandum to board members, alleging that O'Halloran wanted to oust him because he refused patronage demands and thwarted the chairman's attempt to take over hiring at the agency.

O'Halloran has denied the allegations and insisted Clifford leveled patronage claims only after learning his contract might not be renewed.

But the memo, which Metra officials tried for months to keep secret, now is a critical piece of evidence in multiple investigations into Clifford's departure. The controversy has spurred the resignations of five board members, leaving the agency without the supermajority needed to hire a new executive director or elect another chairman.

The RTA, which has financial oversight over Metra and other area transit agencies, began investigating the severance package in June after learning about the settlement from the media. An auditing team spent two months reviewing thousands of pages of documents, listening to recordings of closed-door sessions and interviewing agency officials.

The audit focused strictly on the financial prudence of the settlement agreement and did not address Clifford's patronage claims. Those allegations are currently being handled by the state executive inspector general and his General Assembly counterpart. The Federal Rail Administration also is conducting its own investigation.

O'Halloran repeatedly has said he spurred the state-level investigations by forwarding Clifford's allegations to the inspector general. The RTA audit, however, found no record of what was given to the inspector general's office or when it was sent, documents show.

"There was a lack of actual documents available to support many of the decision points," the briefing document states.

Partelow maintains the various investigations will show the board only wanted to cut the best deal possible for the taxpayers.

"It's simple but straightforward," Partelow said. "We didn't know when we voted on the severance package there was a $150,000 option. Had we known that, we'd have been all over that thing and spared everyone these past two months (of controversy). It was a business decision the whole way."

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